Money markets are not benefiting from rising interest rates

While yields on shorter maturity treasury notes have risen over the past month, money markets yields remain suppressed. The three-month treasury bills still hover around 5 basis points. The uncertainty about the Fed’s “taper” is spooking investors out of “risky” assets and into bills and other money markets products. This higher demand for bills is holding down short-term rates near zero even as longer term rates rise.

This dynamic of course is not limited to the two maturities in the chart above. The whole front end of the curve has steepened materially without much impact on bill rates.

Once again, savers are punished – they either have to take risk (such as rate or credit risk) or live with 5bp (or less). Money markets simply have not benefited from higher interest rates.

Sober Look is a no-hype financial markets/macro blog that typically relies on data analysis, primary sources, and original materials. We keep it concise, to the point, with no self-promoting nonsense, and no long-winded opinions. If you are looking for Armageddon predictions or conspiracy theories, you will be thoroughly disappointed. Topics include financial markets, banking, asset management, risk management, derivatives, global economy, policy, and regulation, with the emphasis on finance education. Follow him on his blog or twitter.